Here is a list of the reasons that franchisors fail. Some of the following ingredients for franchisor failure will seem to be duplications in some situations and not in others.  Many do not apply to many situations, various combinations apply and some can obviously be expanded upon.  These are in no real order;

• The financial model is unprofitable for the franchisor
• The financial model is unprofitable for the franchisee
• Poor standards producing poor product and/or service
• Public perception of concept quality and/or value is poor
• Poor marketing strategy
• Product/service with a limited or declining market
• Poor site selection
• Franchise concept is flawed [general]
• Poor franchise systems
• Markets become saturated [competitors]
• Markets become saturated [same brand]
• Staffing developments - increased costs and/or available staff regression
• Specific industry regulatory requirements are/become too expensive
• Franchise network does not receive the necessary level of training, support and/or marketing
• Poor administration systems
• Lack of transparency
• Franchisor disinterest in franchisee profitability and/or relationship
• Annual rent increases swallow profits
• Franchisor income streams destroy franchisee profitability
• Franchise network too small to deliver the necessary level of training, support and/or marketing required for growth
• Failure to adapt to market needs
• Credit obstacles
• Franchise support/training staff selection poor
• Failure to address poor performing franchisees
• Bad advisors
• Media destroy reputation of the brand
• Media destroy reputation of the franchisor
• Regulator investigations destroy the reputation of the franchisor
• Disclosure document destroys ability to sell franchises
• Litigation level destroys reputation of the franchisor
• Failure to grow network amidst increasing operational costs strangle franchise development
• Failure to maintain/develop network consultative relationship
• Weak franchisor

And my favourites ...

• Poor franchisee selection
• The franchisor is a psychopath
• Rebellious franchisees destroy reputation of the franchise

You can now add to this list or you may argue redundancy.  When I typed the word ‘bankrupt' into the BMM search it came back with 17 pages of hits. The results obviously didn't all relate to failed franchise concepts but there are many.  That search will be worth checking at the end of 2009.

One thing is for sure; if due diligence of a franchise offering does not produce evidence of any these effects then you would expect to be on a ‘winner'.  It should also be clear that an investigation of a franchise offering should not be limited to reviewing the franchise contract and the disclosure document and speaking to past and present franchisees.  

When a franchisor eventually fails there is usually a long history of franchisees who failed before any combination of these effects caught up with the franchisor.  A bankrupt franchisee will not bring down a franchisor but a bankrupt franchisor will probably see a trustee looking for a buyer where the franchisees' investment has been markedly diminished.   When a franchisor fails he may have an off-shore account; when a franchisee goes under he/she usually sees everything go down and few families survive to reminisce about the bad old days.  

How many prospective franchisees are capable of such a risk evaluation?  How many 'professionals' are capable or prepared to undertake such risk evaluation?